Incoterms 2022, Learn how Incoterms® can be used in 2022 and beyond. Understand how EXW, FCA, FOB, CFR, CIF, CPT, CIP, DAP, DPU and DDP are used for import export.”

Freight incoterms (International Commercial Terms) are the standard terms used in sales contracts for importing and exporting. They are used to define responsibility and liability for goods over the course of a shipment. In other words, they spell out when responsibility for the goods transfers from the supplier to the buyer. They also define who pays which costs for the goods and their transport.

Incoterms 2022

2022 incoterms

2022 incoterms

Exchanging goods, services and money is one of the oldest practices of modern civilization. It is also one of the main drivers of its growth, development and progress. International trade has shaped the world since ancient times and it remains responsible for the direction societies take to enhance their position in the global economic marketplace.

Transactions of an international nature have grown dramatically and steadily since the 1970s. Technological advances, logistics infrastructure and automation have facilitated faster and more reliable transport and storage by land, sea and air, which is why the throughput of traded goods is 10 times higher than it was 50 years ago.

As our socio-economic system has grown, the need to regulate international trade has multiplied. So, in the early 20th century, the U.S. Congress passed the International Trade Act. Incoterms® rules established. This marks the beginning of the development of a higher standard of trust between different countries and economic zones.

In this Incoterms 2022 guide we will outline everything covered by this set of rules and all the details affecting both the seller and the buyer at both ends of an international sales contract

What are Incoterms?

The Necessity of Establishing International Trade Rules

Throughout history, as international trade has grown in complexity and scope, it has been necessary to incorporate specialized departments required to control and maintain all the different processes and procedures that make up the trading system.

So, while one department manages inventory and orders, another department takes care of the cargo transportation activities. Then there’s the department responsible for balancing payments, exchange rates, and customs processing. All are working alternately so the whole trade “machine” can run efficiently.

Trade trends established under the new global economic model have prompted public administrations and private companies to push for better international business regulations to ensure a fair, safe, stable and controlled flow of goods.

The Basis of Incoterms®

Because of the need to enforce the rules of international trade, there is a need to form organizations under which all companies and public entities dealing with international trade are brought under their umbrella. Among the most notable international organizations are:

World Trade Organization (WTO);
International Chamber of Commerce (ICC);
International Monetary Fund (IMF);
International Federation of Customs Brokers Associations (IFCBA);
International Federation of Freight Forwarders Associations (FIATA);
International Maritime Organization (IMO);
Intergovernmental Organization for International Railway Transport (Overseas Chinese Federation);
International Road Transport Union (IRU);
ǞǞǞ International Air Transport Association (IATA).

Most of these organizations are critical in drafting recommendations and regulations on international transactions in the sale and transport of physical goods, especially in the areas of transhipment logistics and finance.

With trade between so many different countries and other economic-fiscal areas, national legislation on legal trade is almost never beyond the domain of a single country. This includes different cultural, social and business customs and languages.

This is where the difficulty arises when considering international trade. Disagreements between sellers and buyers can fuel contract breaches and disrupt delivery chains.

To eliminate the risk of potential setbacks, in 1936, the International Chamber of Commerce (ICC) proposed Incoterms – a set of rules designed to regulate the terms of delivery of goods and provide legal protection for international trade transactions

What are Incoterms® rules?

Incoterms® rules clearly and precisely outline the rights and obligations of both parties (seller and buyer) in a mutually signed international sales contract. The main content of the contract is the terms of delivery of the goods to be sold.

There are five key aspects that are defined by the Incoterms® rules.

The responsibility for the delivery of goods assigned to the seller and the buyer in an international sales contract.
Which party is responsible for the costs of the different steps and operations belonging to the logistics chain (packaging of goods, renting of means of transport, loading and unloading of transport vehicles, stacking and unloading, etc.).
Which party is responsible for the safety risks and insurance costs of the goods at certain points in the logistics chain, as well as the delivery journey.
Where required by law, which party is responsible for carrying out the customs clearance procedures for the goods.
At what point does the risk of the goods pass from the seller to the buyer and when and where the goods are delivered.

In this Incoterms 2022 guide we will outline everything covered by this set of rules and all the details affecting both the seller and the buyer at both ends of an international sales contract

What Are The Provisions Of Incoterms?

By examining the Incoterms® rules, we have collected ten aspects of how they define the obligations of the seller and buyer when delivering the goods. We list them here.

Seller’s undertaking:

Delivery of the goods alongside the sales invoice according to the terms set out in the international sales contract.
Obtain authorizations, licenses, export clearance, import clearance, safety certifications and other official permits regarding the sale of goods.
Drafting of insurance and carriage contracts.
Efficient delivery of goods up to the point of risk transfer.
Risk transfer
Cost-sharing
Inform the buyer of the delivery of the goods in a timely manner
To certify and record the delivery of goods
Goods are inspected, packed and labeled
Assist the purchaser in providing requested information regarding delivery of the goods and any associated charges

Purchaser’s Commitment:

Payment is made in accordance with the terms set out in the international sales contract
Obtain authorizations, licenses, export clearances, import clearances, safety certifications and other formal approvals for the purchase of goods
Drafting of insurance and carriage contracts
Efficiently receive goods from the point of transfer of risk
Risk transfer
Cost-sharing
Inform the seller of the receipt of the goods in a timely manner.
Certify and record receipt of goods
Inspection of goods
Assist Seller with any information requested regarding receipt of the Goods and any associated charges

What Is Not Subject To The Incoterms® Rules?

Earlier, we mentioned that the Incoterms® rules mainly focus on defining the commitments of both the seller and the buyer with respect to the delivery of the goods. Some aspects, such as the commercial part of a sale transaction, are outside the scope of the draft Incoterms®.

There are five main areas in international sales contracts for which the Incoterms® rules do not apply.

A condition set forth in a contract between a shipping carrier and a buyer or seller.
Conditions for the transfer of ownership of the goods.
Payment terms, including the price of the goods and the method of payment to be used in settling the sale transaction.
Conditions governing the breach of contract, including the means of settlement.
Disclaimer of any liability with respect to the condition and delivery of the goods.

The above mentioned aspects must be properly defined in the sales contract so that both parties can review and mutually agree to the listed conditions.

Another area that falls outside the scope of the Incoterms® rules is the marketing of goods and services. This is important to keep in mind in the event of a breach of contract.

A key detail is also worth remembering that even though international payment methods are not expressly regulated by the Incoterms® rules, they are often mentioned in contracts and remain closely related. Therefore, this needs to be clearly set out in the contract, because the payment contract outside may have other instructions

The 2022 Version Of The Incoterms Rules

Incoterms® has been updated and enhanced several times since it was first drafted in 1936. Its latest ninth edition was published in September 2019 and came into full force on January 1, 2020. The 2022 Incoterms® rules are the same as the 2020 ones, and our guidance is based on the 2020 Incoterms® version

Incoterms® 2020 contains 11 independent rules, which are the abbreviations of their full English names. Below is a list of the 2020 Incoterms® rules, including their abbreviations and full descriptions.

We can divide these terms into four groups because we can notice that they all start with one of these four letters. This is convenient for the classification of Incoterms® rules, since each group of letters is dedicated to specifying a specific place or route for delivery of goods:

Rule E (Departure):
Place of delivery of goods: at the place of origin, at the establishment of the seller.

The seller delivers the goods within its establishment and makes them available to the buyer.

Regulation F (Unpaid Primary Carrier):
Place of delivery of goods: at the place of origin, when the buyer hires a means of transport for delivery and pays for it.

The seller delivers the goods to the mode of transport without payment.

Regulation C (Paid Main Car):
The place where the goods are delivered: at the place of origin, when the seller hires a means of transport for delivery and pays for it.

The seller delivers the goods to one mode of transport after payment and immediately transfers the risk.

Rule D (Arrival):
Place of delivery of goods: at the destination specified by the buyer.

The seller is responsible for the transportation, delivery of the goods at the final destination and assumes all risks

5 Aspects That Need Attention In The Process Of International Trade

1.Shipping method

We mentioned that the Incoterm® rules can be classified according to which mode of transport is used from the vessel to the buyer.

The rules mentioned are sea freight (including inland waterway) are FAS, FOB, CFR and CIF. Commonly known as maritime transport, this mode of transport uses various cargo vessels to move goods between seaports or river ports. This may include general cargo vessels, multipurpose vessels, feeder vessels, tankers, reefer vessels, container vessels, ro-ro vessels (transportation vehicles), dry bulk carriers, livestock vessels, and more.

Four Incoterms® rules are dedicated to this mode of transport and apply to contract deliveries of general cargo types (dry bulk, bulk, ore, oil, etc.). They are not suitable for containerized cargo. In short, all goods that are only transported between ports can be handled by these Incoterms® rules.

Containerized goods that are transported by sea and by various other modes of cargo transportation such as air, road, rail and intermodal can be successfully regulated by the other seven Incoterms® rules. These rules are EXW, FCA, CPT, CIP, DAP, DPU, and DDP. These rules may apply to any combination of the above modes of transport, unless general cargo is exclusively port-to-port.

Port-to-port sea transport, if it involves breaking down arriving loading units, requires a separate contract between the shipper and the carrier.

Multimodal transport, which can combine routes involving ships, trains, trucks, planes and other modes of transport, requires different regulatory rules because the loading unit is not broken down each time a different mode of transport intercepts a shipment.

2.Costs Nnd Risks

The delivery of international shipments comes with reasonable costs and risks. There are many factors that change the cost and risk of a delivery, depending on the distance from origin X to destination Y, the mode (or modes) of transport required for the delivery, the type and nature of the cargo (bulk, fragile, livestock, containerized cargo, palletized cargo, etc.), and other specifications stated in the international sales contract.

We can categorize the costs and risks associated with international deliveries according to the point of initial or final delivery of the goods.

Cost and risk at origin (point of origin) of the goods:

Check the goods.
The packaging of the goods.
Configuration of the load cell.
Insurance.
Load and secure cargo for transport.
Transportation of goods in the country of origin.
Export customs clearance.
Handling of cargo upon departure from the port or terminal in the country of origin.
main means of transport.

Cost and risk of the goods at destination (final point):

Insurance.
Processing when the cargo arrives at the port or terminal in the country of destination.
Import customs clearance.
Carriage of goods in the country of destination.
Unloading and receiving cargo at the destination point.

The seller is responsible for all risks until the goods are delivered on the date and time specified. The point of delivery can be considered as whatever is agreed between the buyer and the seller in their international sales contract, therefore, the point of delivery can take place at the place of origin (seller’s premises), at any point during the transport of the goods (distribution platform, on board Air, rail, truck or ship, at a customs terminal, etc.), or at the destination address (Purchaser’s premises).

The cost and risk aspect of the logistics chain process is one of the most critical links in the delivery of goods, therefore, both sellers and buyers should ask themselves the following questions in order to successfully draft a comprehensive and effective sales contract

3.Contract of Carriage

We mentioned that although the Incoterms® rules only apply to regulatory issues of the sales portion of the contract, their application strongly influences the terms of employment of transport carriers.

The contract of carriage carries the agreed conditions between the shipper of the goods and the transport carrier and is a completely separate document or part of the contract, including the agreed Incoterms® rules.

Shipping companies or freight forwarders usually require the party bearing the cost of transporting the goods to disclose which Incoterms® rules are drafted in the international sales contract so that they can issue quotations based on this information

4.Customs Clearance (export and import)

When it comes to international trade, customs clearance of goods is always done at the time of export (sending goods) and import (receiving goods).The procedure for customs clearance consists of checking the loading unit delivered by the seller and managing the accompanying documents.

According to all Incoterms® rules, the seller is also the party responsible for carrying out the export clearance procedure, except in the case of EXW (Ex Works), in which case delivery of the goods takes place within the premises of the upper party.

Likewise, when the goods arrive in the destination country, the buyer is responsible for import customs clearance. This also applies to all Incoterms® rules, except the DDP rules (Duty Paid), where the conditions emphasize that all delivery costs and risks are at the seller’s expense.

5.Insurance Policy

Under the conditions of most Incoterms® rules, contracting out cargo transportation insurance is mainly optional. The only expectations are CIF (Cost, Insurance and Freight) and CIP (Carriage Insurance Paid To), where the seller is required to contract shipping insurance and covers the goods at risk or damage to the buyer.

Both Incoterms® rules refer to the main transport stages of the logistics chain in the delivery of goods; the only difference is that one of them (CIF) refers only to maritime transport (sea and inland waterway shipping), while the other (CIP) applies to the All modes of intermodal transport (sea, rail, road, air or pipeline).

In any event, both parties may (separately or mutually) agree to enter into carriage insurance in accordance with any Incoterms® rules. This is highly recommended as it removes some of the risks that are always present in the shipping chain.

Transport insurance can be concluded on the basis of pre-agreed conditions in the insurance policy. These conditions can state which party insures the goods and bears the risk depending on the point of delivery and the transfer of risk

Incoterms 2022 Main Rules

1.EXW (Ex Works)

The first of the Incoterms® rules is unique for several reasons. It is the only rule in the electronic rule group because it is the only rule that makes the goods delivered at their own origin. It is also the rule imposing minimum obligations on the seller, but focuses primarily on regulating the obligations of the buyer.

Ex works rules enable the seller to fulfill its obligations without loading the goods on the initial means of transport which is the responsibility of the buyer. However, after the EXW clause, a special option marked “Loading” can be drafted, which means that the selling company agrees to load the goods onto the initial means of transport.

The seller’s obligations include packing and labeling the goods and providing the buyer with proof of receipt of the sale.

To benefit from the EXW rules, we advise buyers to ensure that loading is included when renting a transport vehicle to avoid unnecessary accidents.

EXW is for shorter distances between initial and final destinations, where shipments are handled in smaller shipments or parcel shipments.

The main attributes of EXW

Delivery place: The delivery place can be the seller’s own place, or other places specified in the international sales contract (such as warehouses, distribution platforms, factories, warehouses, etc.).
Place of transfer of risk: The seller’s own premises are also the point of transfer of risk.
Shipping method: After receiving the goods, the buyer is responsible for transporting the goods to the destination. Transport under this rule can be multimodal (sea, rail, road or air).
Customs Clearance: After receiving the necessary documents from the seller, the buyer is responsible for export and import customs clearance. If the delivery route passes through several countries, the transit formalities are also the responsibility of the buyer.
Transportation Insurance: Since the entire cargo transportation with its risks and expenses is borne by the buyer, it is therefore up to them to decide whether to insure their loading unit against risks/damages during transportation

Our humble opinion on the ex-works (EXW) term is that it is more appropriate for domestic trade than international trade. Its most common use is for courier pickup, where the hired courier does everything from loading the item to shipping and unloading it at its destination.

Since the greatest responsibility lies with the buyer, we advise anyone who agrees to the EXW rules to hire a reliable freight forwarder for everything in the logistics chain and minimize risks and further costs

2.FCA (Free Carrier)

Free Carrier – FCA is the first of the three Incoterms® rules and the only one in this set of rules that mentions multimodal transport.

If the seller and the buyer agree to settle their international sales contract according to this rule, the seller is responsible for delivering the goods up to the point where the main transport phase of the logistics chain begins.

Unlike many Incoterms® rules, the FCA rules provide greater flexibility in deciding where to designate delivery. The seller and buyer parties can choose the seller’s place of origin (its premises, which can include warehouses, distribution platforms, factories, warehouses, etc.) or the designated place where the goods start their main journey (sea port or inland port, air cargo terminal, railway container terminal , freight forwarding warehouse, etc.).

Under this rule, the buyer is obliged to hire a carrier for the primary transportation of the goods at his expense and risk.

With this rule, it is clear that the seller is the party that should handle the customs clearance procedures for the exported goods and bear the export certification and document costs

The main attributes of FCA

Place of delivery: If the agreed place is the place of origin, the seller is required to load the goods on a vehicle hired by the buyer. If the agreed place of delivery is another named place, the seller is responsible for
Loading and delivery of goods by inland transportation so that they can be unloaded and paid for by a carrier hired by the buyer.
Place of transfer of risk: Depending on the place of delivery, the place of transfer of risk may be the seller’s own premises or a designated place where the goods are unloaded from the seller’s transport vehicle.
Mode of transport: FCA rules make it possible for both parties to use multimodal transport (sea, rail, road, or air) — whether it’s the seller’s inland shipment or the buyer’s primary shipment.
Customs clearance: Unlike EXW rules, all customs clearance procedures are carried out by the buyer, while under FCA rules, the seller is obliged to go through export customs clearance procedures. Import and re-export customs clearance is the buyer’s responsibility.
Shipping Insurance: According to this rule, the buyer bears the largest part of the responsibility, but neither of them is obligated to purchase shipping insurance

But we feel compelled to point out that choosing the exact delivery location needs to be thoroughly discussed between buyer and seller. This is especially important on the buyer side, as this is where the risk is transferred.

Another point of note is that the FCA rules apply to the movement of containerized cargo by sea or truck cargo by road

3.FAS (Free Alongside Ship)

The second rule in the F-Rules group is the FAS Code – Free Arrival Rules – the first Incoterms® rule designed to regulate international maritime trade transactions.

This rule can be used as long as the buyer charters a vessel for the delivery of the goods during the main transport stages of the logistics chain. Therefore, the FAS rules can only be used for shipments that take place by sea or by inland waterways.

The seller’s responsibility here extends to providing island transportation of the goods, up to the wharf/berth where the buyer’s chartered vessel accepts the goods, hence its name (the ship that docks). The Seller shall deliver the Goods on the agreed date and time and provide the Buyer with relevant sea/port documents evidencing delivery.

At the buyer’s discretion, the bill of lading, which is a receipt documenting the goods to be shipped on board, may be obtained with the assistance of the seller.

In short, the seller’s obligations include packing, labelling, obtaining export permits, loading, transporting the goods to the appropriate cargo dock or terminal, and unloading.

Key attributes of FAS:

Place of delivery: The cargo terminal or port terminal nominated by the buyer, on the date and time specified in the international sales agreement, together with the vessel chartered by the buyer.
Place of Passing of Risk: Same as the place of delivery – risk is considered to have passed to the buyer once the goods have been unloaded from the seller’s transport vehicle and the appropriate documentation has been handed over to the buyer’s party representative.
Mode of transport: FAS rules are only used when sea transport is used (general cargo ship, multipurpose ship, tanker, ro-ro ship (transport vehicle), dry bulk carrier, etc.).
Customs clearance: According to the regulations of FAS, the seller is obliged to go through export customs clearance procedures. Import customs clearance and transfer clearance are the buyer’s responsibility.
Shipping Insurance: As with the FCA rules, under the FAS rules it is in the buyer’s interest to obtain shipping insurance, but in practice neither party is restricted from purchasing shipping insurance.

As the goods are delivered right next to the buyer’s chartered vessel, the FAS rules are not optimal when it comes to delivering containerized goods, as shipping containers are only stacked and stored in designated places.

The FAS rule is recommended for buyers buying bulk goods, vehicles, heavy machinery, capital goods, bulk goods and other similarly packaged goods.

Buyers need to watch carefully when choosing this rule, as “side” clauses may contain several gray areas in the event of a dispute

4.FOB (Free On Board)

Building on the FAS rule, the FOB Incoterms® rule (Free On Board) is the third and final rule in the F rule.

This is another rule that regulates maritime transport (by sea and inland waterway), and compared to the FAS rule, the seller has an additional obligation to load the goods to be delivered on board the vessel chartered by the buyer.

By doing so, the seller obtains the bill of lading himself, and therefore needs to provide the bill of lading to the buying company, although the means of transport is hired by the latter.

This document is obtained at the request of the buyer, and the seller is required to assist with their request. However, this obligation remains at the buyer’s expense and risk.

Therefore, even though the buyer pays for loading the goods on board their booked vessel, the risk at this stage remains with the seller.

The FOB rule is frequently used for bulk shipments and is often accompanied by extensions such as “STOWED” or “STOWED and TRIMMED” to indicate that the cargo has been properly loaded on board, leveled and secured.

The main attributes of FOB:

Place of delivery: The goods are considered to be delivered by the seller when they are transported and loaded on the vessel booked by the buyer at the named dock or port terminal on the specified date and time.
Place of risk transfer: According to the FOB rules in the signed international sales contract, the risk of the goods is transferred from the seller to the buyer when the goods are shipped.
Transportation method: FOB is only used for sea and inland waterway transportation (general cargo ship, multi-purpose ship, dry bulk carrier, etc.).
Customs Clearance: Same as FAS rules – the seller is responsible for export customs clearance. Import customs clearance and transfer clearance are the responsibility of the buyer.
Transportation Insurance: None of the rules in the F-rule group obligate the buyer and seller to insure the goods against the risk of damage and loss during delivery and transit.

Buying on FOB rules is most suitable when you are dealing with dry or bulk cargo such as grain, lumber, steel, coils, pipes, heavy equipment, or general cargo packed in boxes, bags, bags, drums, etc.

Like FAS rules, containers are loaded onto container ships by carriers or port facilities, so this type of cargo is not suitable for FOB rules. Of the F regulations, the FCA regulations are the most appropriate to regulate the movement of containerized cargo

5.CFR (Cost and Freight)

Group C of the Incoterms® Rules follows the same practices as Rules E and F with regard to the transfer of risk and delivery of goods. They all occur in the country of origin.

The difference is the seller’s obligation in terms of primary transportation – under Rule C, the seller bears the primary transportation costs of the goods.

The first of these rules – the CFR (Cost and Freight) rule – specifies the direction in which the main mode of transportation of the goods is sea freight in the international sales contract.

The seller’s responsibilities include packing and labelling, loading the goods for inland transportation, and unloading the goods on the cargo ship booked in advance by the party.

The buyer’s obligations begin anew when the goods arrive at their named port. Therefore, they need to unload the cargo from the ship, pay the necessary port fees, clear customs at import, transport the cargo, and unload the cargo at the final destination.

It is also possible for the seller to agree to pay for the unloading of the goods at the port of destination. This needs to be expressly indicated in the sales contract with the CFR extension “LANDED”.

Key attributes of CFR:

Place of Delivery: The place of delivery of the goods is named as the place where the goods are loaded on the carrier vessel in the country of origin even if the seller bears the main transportation costs up to the port of destination in the country of destination.
Place of transfer of risk: Same as place of delivery – once the goods are loaded on board the carrier, the associated risk is deemed to have passed.
Mode of transport: The cost and freight rules apply only to the transport of goods by sea transport (general cargo vessel, multipurpose vessel, tanker, ro-ro vessel (transportation vehicle)). container ships such as dry bulk carriers, etc.).
Customs clearance: According to CFR rules, the seller is obliged to go through export customs clearance procedures. Import customs clearance and transfer clearance are the buyer’s responsibility.
Transportation Insurance: According to CFR rules, a significant portion of the risk is borne by the buyer, therefore, it is up to them to insure for loss or damage to their loading unit during transit. Like the previous rules, the CFR rule does not require both the seller and the buyer to obtain transportation insurance.

Sellers who agree to bear the primary transportation costs under the CFR rules need to understand the concepts of “free laytime” and “demurrage”.

Free loading/discharging time refers to the specified time during which a ship allows bulk or piecemeal cargo to be unloaded on or off the ship. If this time frame is violated, a fee called a demurrage may need to be paid to the terminal management in use or to the carrier of the vessel.

On the other hand, buyers should note that if in exceptional circumstances (such as bad weather conditions) the goods have to be transferred to another ship, then the cost of the transshipment is their responsibility.

Finally, while containerized goods can be purchased using cost and freight rules, a more appropriate option is to use CPT (carriage paid to) rules

6.CIF (Cost, Insurance and Freight).

In effect, the CIF Incoterms® Rules (Cost, Insurance and Freight) impose the same obligations as the CFR Rules, with one additional requirement on the seller. This makes it the first rule on this list to require sellers to obtain cargo transportation insurance at major stages of the logistics chain.

Just like the CFR rule, this rule only applies to the carriage of goods by sea (sea and inland waterways). The other conditions are the same – CIF rules obligate the seller to bear the freight for the buyer and ensure that the goods are transported to the final port of destination.

There, the goods can be unloaded from the shipping vessel if the parties agree in their international sales contract, extending the CIF rules with the word “LANDED”.

Under this provision, the seller must keep the bill of lading available to the buyer, as the latter needs this document when the goods are intercepted at the port of destination.

The bill of lading should also be negotiable, meaning it must offer the buyer the ability to sell the goods even before they reach the final port (while still in transit).

Key properties of CIF:

Place of Delivery: As with the CFR rules, the goods are considered delivered once they are loaded on board the ship in the country of origin, even if the seller is the party that bears all costs of the primary transportation and its insurance.
Where the risk is transferred: When the goods are assumed to be delivered (loaded on the carrier), the risk is also transferred.
Mode of transport: Cost, insurance and freight rules apply only to cargo transport by sea transport (general cargo vessel, multipurpose vessel, tanker, ro-ro vessel (transportation vehicle), container vessel, dry bulk vessel, etc.).
Customs clearance: According to CIF rules, the seller is obliged to go through export customs clearance procedures. Import customs clearance and transfer clearance are the buyer’s responsibility.
Transportation insurance: Unlike all previous rules, CIF rules require the seller to choose full insurance to insure the goods during transportation. This insurance is required to ensure that at least 110% of the full price is paid to the buyer in the event of loss or damage to the goods. The extra 10% assumes that this is the buyer’s minimum profit from the insured goods.

The insurance premium paid by the seller for the shipment of the goods is usually the basic option offered by the insurance company, which often may not be sufficient. Therefore, it is recommended that the buyer discuss extended insurance coverage. Therefore, the extra cost should be compensated by the buyer.

As with the CFR rules, all types of cargo can be shipped under the CIF rules. However, the rules for containerized cargo are not recommended as the transportation of the cargo is only done by sea or riverboat. In this case, the CPT rule is a better choice because it provides more freedom in the mode of transportation.

7.CPT (Carriage Paid to)

Under the CPT rules (carriage paid to), both the seller and the buyer can agree that the destination of the goods can be anywhere along the route from the seller’s premises to the buyer’s premises.

Just like the CIF and CFR rules, under the CPT rules, the entire transportation up to the destination of the goods nominated by the buyer is the responsibility of the seller, who bears all costs related to this stage. Likewise, the risk transfer phase takes the same approach

However, unlike the CIF and CFR rules which only govern sea transport, all modes of transport (rail, road, air and sea) can be used when chartering transport under the CPT rules. Also, unlike the previous Regulation C, the CPT Regulation allows the seller to deliver the goods to the carrier where they wish (seaport, rail terminal, air cargo terminal, or road transport at their own premises).

As the party responsible for the primary transport, the seller is obliged to provide the buyer with a bill of lading if sea transport is used, or a waybill if other means of transport are chartered.

Key attributes of CPT:

Place of delivery: According to CPT rules, the goods are considered delivered once the seller has handed over the goods to the carrier they booked and paid for.
Where the risk is transferred: When the goods are assumed to be delivered, the risk is also transferred (from the seller to the hired carrier).
The mode of transport CPT rules enable both parties to use multimodal transport (sea, rail, road or air) – whether a carrier hired by the seller to transport the goods to a named point of destination, or a carrier hired by the buyer to transport the goods further Shipped to Buyer’s premises.
Customs clearance: Since the transfer of risk still takes place in the country of origin, the seller is responsible for export customs clearance. The remaining responsibility for transit formalities and import clearance remains with the buyer.
Transportation Insurance: When it comes to choosing insurance for the transportation of goods, whether it is in the interest of the seller or the buyer, the CPT rules are not binding. Buyers can consider opting for insurance, because this rule of risk transfer usually occurs at the beginning of the logistics chain.

Compared with CFR or CIF rules, CPT rules are more suitable for handling containerized goods, because they are only suitable for the carriage of goods by sea. The CPT rules will allow ground transportation if the goods need to be moved on land, such as rail or road vehicles and air carriages.

In addition, this rule is applicable to all kinds of containerized cargo, whether it is LCL (loose cargo) cargo or FCL (full load) cargo

8.CIP (Carriage and Insurance Paid to)

The CIP rule (Carriage and Insurance Paid to) is basically an insurance extension of the CPT Incoterms® rule. All obligations and responsibilities of the buyer and seller are the same as under the CPT rules, except that the CIP rules stipulate that the seller must obtain transportation insurance.

In addition to transporting the goods from its own premises to the destination specified by the buyer, according to the CIP rules, the seller is obliged to arrange transport insurance for the entire journey covered by his contract of carriage.

This last C Incoterms® rule applies to all shipping methods and is very convenient for the buyer as they have less cost to transport the goods to their desired destination and they can enjoy the insurance policy covered by the seller come for protection.

The use of CIP rules entails the same other obligations regarding transfer of risk, place of delivery and customs clearance as for all other C rules of this group.

Key attributes of CIP:

Place of Delivery: Same as the CPT rules – the goods are considered delivered once they are made available by the seller to the carrier they have hired.
Place of transfer of risk: The transfer of risk for the goods takes place at the same time as the delivery of the goods is completed (when the seller hands over the goods to the hired carrier).
Mode of transport: All options that constitute multimodal modes of transport are available through the CIP rules (rail, road, sea and air). For example, the seller may hire a carrier to transport the goods to the destination country by truck and ship, while the buyer will use railcars and trucks to deliver the goods to their warehouses.
Customs Clearance: Like all Type E, F, and C rules, CIP rules also require the seller to clear all customs formalities for the export shipment and provide documentation to the buyer so that they can pay for the transit formalities (if the goods pass through other countries or economic zones ) and import duty charges when the goods arrive at the country of destination.
Shipping Insurance: Questions. The Insurance Institute of London states in its Institute Cargo Clauses (ICC) that any Incoterms® rule, which enforces carriage insurance for the sale of goods, requires the selection from the seller of a carriage insurance covering at least 110% of the price of the sale of goods paid for by the buyer. Besides the CIF rule, the CIP rule is the second and last of the Incoterms® rules to offer this benefit.

The CIP rule is often used because it brings flexibility and benefits to the buyer. It requires the seller to insure the shipment of the goods to the destination specified by the buyer.

Under CIP rules, all modes of transport are available to both parties, and for this reason, the transport of containerized cargo is encouraged over other C rules. Shipping costs are also settled by the seller

9.DAP (Delivery Point)

All the rules in Incoterms® apply to the use of goods for the sale of any mode of transport or a combination of transport of different kinds (multimodal transport). They also place the seller at the highest risk and expense of delivering the goods.

The DAP rule (Delivery Place) is the first of this set of rules and mainly regulates the delivery of the goods to the destination chosen by the purchasing company. It is also the first rule to allow delivery of goods outside the country of origin.

Through the DAP rules, the seller is also responsible for bearing the risks and costs of the goods at each stage of the main transportation. In contrast, Incoterms Groups E, F and C rules allow selling companies to deliver goods in their country of origin and transfer their risk.

According to the DAP rules, the only stage of transport that is not required to be performed by the seller is the final unloading procedure. This rule allows the seller to ship the goods in perfect condition to the final destination point and make it available to the buyer. The latter party can sign an unloading contract at the destination port/railway warehouse/air terminal, or carry out unloading at its own premises.

Key properties of DAPs:

Place of Delivery: Usually the country of destination, at the place of delivery specified by the buyer. Considering the mode of transport, this could be a major port of entry or terminal, or the buyer’s premises.
Place of transfer of risk: Same as place of delivery – the risk is borne by the seller throughout the main carriage and passes to the buyer at the named destination before the goods are unloaded from the hired conveyance.
Mode of transport: DAP rules make intermodal transport (road, rail, sea or air) an option for both parties – however, it is the seller’s obligation to hire a carrier for the primary transport from the country of origin to the country of destination, and they undertake this part of the cost.
Customs Clearance: Under this rule, it is common practice that the seller is responsible for export customs clearance, while the buyer bears the cost of import customs clearance when applicable.
Transport Insurance: Under the DAP rules, a large part of the risk falls on the seller, therefore, it is up to them to decide whether they want to insure against damage or loss of the goods during transport. Like most Incoterms® rules, the DAP rules do not make it mandatory for the seller or buyer to obtain shipping insurance.

The D-rule groups are very beneficial to the buyer because these rules provide a security that the rules of the other groups lack. According to the DAP rules, the seller must ensure that the goods are delivered to the destination in perfect condition.

The DAP rules mainly apply to the road mode of transport where import clearance is not a requirement when the goods are delivered by truckload or grouped trucks.

Traders in economic areas such as the European Union or the Southern African Development Community can benefit from this rule as goods can be delivered without customs clearance

10.DPU (delivered at point of unloading)

Including an additional benefit for buyers, the DPU Incoterms® Rules (Delivered at Place Unloaded) extend sellers’ obligations to unload the goods once they have reached their final destination.

Likewise, the shipping carrier is employed by the seller who bears all costs and risks associated with the transportation of the goods to the delivery destination specified by the buyer.

The DUP rules, like the DAP rules, allow the use of all modes of transport, thus, allowing the delivery of goods far beyond the destination port/terminal. The options for delivering the goods are either a seaport or another terminal in the country of destination, a customs service station, the buyer’s warehouse or storage center, or direct delivery to the door.

Once the carrier hired by the seller has unloaded the goods, the buyer can proceed with other procedures in the logistics chain (import clearance, additional transport, storage, etc.).

Key attributes of a DPU:

Place of Delivery: It can be anywhere where the buyer agrees to deliver the goods – at the seaport of entry or rail/air station in the country of destination, at the customs department’s warehouse, or at the buyer’s own premises. Delivery is considered to have been made when the goods have been unloaded from the means of transport for which the seller is responsible.
Place of transfer of risk: The delivery of the goods is at the seller’s risk until the goods are unloaded from the last carriage of the main stage of transport. The transfer of risk takes place simultaneously with the delivery of the goods.
Mode of transport: DPU rules allow parties involved in international sales contracts to use various road, rail, sea or air transport (multimodal transport).
Customs Clearance: According to the DPU rules, export customs clearance procedures are the responsibility of the seller and import customs clearance procedures remain the responsibility of the buyer, even though the goods can continue to be moved to that point at the seller’s expense.
Shipping Insurance: This rule also imposes no restrictions on shipping insurance. The party who obtains the transportation insurance for the delivery of the goods will be the seller as they are obliged to bear the cost and risk of the entire shipment of the goods.

Best Practices for DPU (Delivered Unloading Place)
According to the DPU Incoterms® rules, it is the primary responsibility of the seller to ensure that the goods are delivered and unloaded in good condition.

at this point. Contracts for the International Sale of Goods Conventions under the Sales of Goods Act provide the seller with certain remedies in the event of an unexpected delivery of the goods normally

11.DDP (Delivery Duty Paid).

The last Incoterms® rule is the DDP (Delivered Duty Paid) rule – arguably, the most convenient rule for the buyer.

This rule bears all the characteristics of the other two D rules – obligating the seller to hire a carriage company that will deliver the goods to the destination designated, cover the costs and risks for the duration of the delivery journey, and ensure the goods are properly delivered to the point of destination.

In addition, DDP rules also require the seller to bear the cost of export and import customs clearance procedures, and every transit procedure when necessary.

Another difference between it and the DPU rule is that the seller does not have to enter into a contract with the carrier for discharge at the final destination, which is not the case with the DAP rule.

Goods sold under the DPU rules may be delivered by any means of transport, including containerized goods transported by freight, rail or road.

Key attributes of DDP:

Place of Delivery: As with all D Regulations (DAP and DPU), goods shipped under the DPU Regulations are delivered to the destination nominated by the buyer in the country of destination (at the port of entry or terminal or further, to a nominated place, which can be the buyer’s warehouse, factory, storage warehouse, distribution platform, etc.).
Place of transfer of risk: The transfer of risk under the DDP rules, like all other Incoterms®, takes place at the place of delivery. Risk is deemed to pass from the seller to the buyer once the goods have reached the destination chosen by the buyer when the contract of sale was drafted (and made available to the buyer)
Mode of Transport: DDP rules allow multimodal transport (rail, road, sea or air) to be available options for both parties to the contract of sale. The seller bears all costs and risks of the initial, main and final transportation of the goods, unless requested by the buyer, they will finally complete the transportation after the goods arrive at the port of destination or wharf.
Customs Clearance: Here is where the DDP rules really shine – export clearance procedures, import clearance procedures and any possible transit procedures are undertaken by the seller.
Shipping Insurance: Neither the seller nor the buyer needs to choose shipping insurance. However, we strongly recommend that sellers consider purchasing shipping insurance, as all risks of shipping the goods are fully overseen by them.

If the EXW (Ex Works) Incoterms® rules impose minimum obligations on the seller and make the buyer bear most of the risks and costs of the international commercial sale of goods, the DPU rules do the opposite.

The seller assumes maximum responsibility, from packing and labeling the goods, paying for export clearance, shipping the goods to the primary carrier, to paying the cost and risk of primary transportation, delivering the goods to their final destination, and paying for import clearance

Summarize

This incoterms 2022 guide explains how important these rules are to facilitate cooperation between sellers and buyers in international trade. They define who bears the costs and risks of delivering the goods for sale at each stage of the logistics chain.

We also saw that the 11 rules are mainly classified according to the mode of transport they allow or where the goods are delivered. According to these standards, the Incoterms® rules allow the use of multimodal transport (any type of transport by sea, land or air) or only sea and inland water transport. Additionally, where the goods are delivered divides these rules into four letter groups — Groups E, F, C and D.

In general, one key thing about the Incoterms® rules should be very clear to everyone involved in the world of international trade. These rules help regulate the obligations of each party involved in an international sales contract. They do not constitute the entire contract, other agreements should be drafted to cover more responsibilities and obligations

Cookie	Duration	Description
cookielawinfo-checkbox-analytics	11 months	This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional	11 months	The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary	11 months	This cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others	11 months	This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance	11 months	This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy	11 months	The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.